Buy to let on remortgage?

millie_17

Please can someone help. We are remortgaging our home which is currently mortgage free to purchase a second property for our son to live in. We have an offer in principle from the bank. However we have decided that we are going to set up a formal rental agreement. In order for us to qualify for mortgage interest relief do we specifically have to have a buy to let mortgage? Thanks

silvercar

You aren’t clear whether the mortgage will be secured on your current home or on the second property. If on the second property you need a regulated buy to let product,  as you are letting to family. These are rare.

If you want to secure the mortgage on your current home, you would get a normal residential mortgage, though you would have to state the purpose is to buy a second property if asked.

Either way, the government has changed the way mortgage interest is considered as an expense of your letting business. It now goes in the ‘other finance’ box on your tax return and its relief is limited to the basic rate.

Have you also considered that you will pay the higher SDLT rate as you are increasing the number of properties you own? You will also need to declare the rental income on your tax return and comply with all landlord legislation.

Typhoon2000

No you don’t need a BTL mortgage ( or even a mortgage ) to claim finance interest tax relief. Any finance/ borrowing up to the purchase price of the let property will count ( not just the mortgage amount if it’s less than the purchase price because of a deposit you already have). So for example you borrow £150k for a £200k property, and are putting £50k of you own money as a deposit but you have also have £25k car finance and £25k credit card balance, you can claim finance interest relief on the mortgage, car finance and credit card balance up tot the purchase price of the property.

silvercar

Typhoon2000 said:

No you don’t need a BTL mortgage ( or even a mortgage ) to claim finance interest tax relief. Any finance/ borrowing up to the purchase price of the let property will count ( not just the mortgage amount if it’s less than the purchase price because of a deposit you already have). So for example you borrow £150k for a £200k property, and are putting £50k of you own money as a deposit but you have also have £25k car finance and £25k credit card balance, you can claim finance interest relief on the mortgage, car finance and credit card balance up tot the purchase price of the property.

I understood the purpose of the borrowing had to be for the BTL. So you could borrow the money against the existing home, but I doubt an existing car loan would count as you didn’t take the car loan to buy the let property. 

mybestattempt

silvercar said:

Typhoon2000 said:

No you don’t need a BTL mortgage ( or even a mortgage ) to claim finance interest tax relief. Any finance/ borrowing up to the purchase price of the let property will count ( not just the mortgage amount if it’s less than the purchase price because of a deposit you already have). So for example you borrow £150k for a £200k property, and are putting £50k of you own money as a deposit but you have also have £25k car finance and £25k credit card balance, you can claim finance interest relief on the mortgage, car finance and credit card balance up tot the purchase price of the property.

I understood the purpose of the borrowing had to be for the BTL. So you could borrow the money against the existing home, but I doubt an existing car loan would count as you didn’t take the car loan to buy the let property. 

@silvercar is quite correct.

It's only the interest on that part of the borrowing used to purchase the let property which can be relieved:


https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2052

millie_17

Thanks so much for your helpful replies.